Delaware Court Finds Acquiror Fraud in $120M Earnout Dispute
A recent Court of Chancery decision applying the Fortis precedent shows the high cost of extracontractual misrepresentations by a buyer during M&A negotiations, absent a bilateral anti-reliance clause.
The Delaware Court of Chancery awarded a $120 million post-trial verdict against a private equity acquiror for fraud in an earnout dispute, finding the buyer knowingly misrepresented the existing payment volume on its platform—a key metric for the seller's earnout potential. The court found dispositive evidence in the acquiror's own internal emails, where the deal team acknowledged the figures shared with the seller were a "red herring."
The decision is the most significant application yet of the Delaware Supreme Court's recent Fortis holding, which exposes acquirors to fraud claims for extracontractual statements of present fact if the deal documents lack a specific disclaimer of reliance from the seller. This verdict underscores the profound risk for buyers in transactions with large contingent consideration components, as the court held that silence in the contract on reliance favors the party alleging fraud. The court also built its own damages model from evidence, signaling a granular approach to valuation. Transactional counsel should immediately review their M&A forms to ensure they include robust, bilateral anti-reliance clauses to foreclose this type of post-closing liability.